Internet Jolts '98 Ipo Market

December 26, 1998|BY DUNSTAN PRIAL Dow Jones News Service

NEW YORK — There's little doubt that the Internet's impact on the 1998 initial public offering market extended far beyond its status as the most successful sector in an otherwise off year for new issues.

At the very least, Internet offerings have created a new standard for what passes as a successful deal.

But more importantly, the unprecedented demand generated by a string of speculative Internet deals late in 1998 gave rise to a never-before-seen trading dynamic that essentially left powerful Wall Street bankers helpless to the whims of novice investors.

The question now facing investors and IPO underwriters, however, is whether these unforeseen consequences will be short-lived, or if the nascent world of online technology is bringing with it wholesale changes to the new-issues market.

One thing is certain: new Internet stocks are expected to remain enormously popular through early 1999. But many Wall Street professionals are predicting -- and hoping -- that some semblance of balance will return to the IPO sector.

"The question for the first quarter is whether the demand broadens out. I think it will," said Joseph Bartlett, a partner with the law firm of Morrison & Foerster, which specializes in technology IPOs.

Bartlett said broad-based demand for new stocks will be triggered primarily by three factors: the continued flow of huge amounts of cash into mutual funds, the frenetic pace of mergers and acquisitions, and corporate stock buybacks.

Fund managers are paid to invest the money they manage, he explained, but as companies consolidate there are fewer and fewer stocks to invest in. "Unless you're feeding that demand with IPO activity, then you get what Federal Reserve Chairman] Alan Greenspan calls `irrational exuberance' because there isn't enough stock to go around and the prices of stocks are driven up," Bartlett said.

A healthy selection of new offerings from a wide array of industries should help ease demand and take pressure off what many consider to be an overvalued large-capitalization sector, he said.

Several large deals are already on tap for early 1999. They include a $1.6 billion deal from Delphi Automotive Systems Inc., General Motors' auto-parts unit, and a revived $231 million offering from canned food company Del Monte Foods. In addition, a recently announced offering from DuPont & Co.'s coal unit Consol Energy is expected to be huge.

Executive search firm Korn/Ferry International filed Thursday to sell a 35 percent stake in the company to the public. The Los Angeles-based Korn/Ferry plans to sell 12.5 million shares at between $13 and $15 each, according to its filing with the Securities and Exchange Commission.

The telecommunications software sector is also being viewed as a potential hot spot for IPOs, as small start-up firms take advantage of deregulation and increased competition in the industry. Investors are eagerly awaiting an expected IPO filing from MetaSolv Software, which makes telecom software for businesses, he said.